The most comprehensive coverage of stadium financing that has appeared in the Miami Herald was on Feb 11th–the Herald links expire, so I copied the article at the end of this post–and it was a good example of the power of omission. Here is what it said about New York stadiums:
The New York stadiums, worth nearly $2 billion, include no upfront public payments — but the city is investing nearly $400 million in infrastructure surrounding the ballparks.
That is true but incomplete. I will break out the Yankees stadium costs from the Mets for comparison purposes and highlight what the article could have pointed out. Facts that, I believe, would have been of great interest not just to those following our local stadium issue, but to the legion of fans which follow the [Evil Empire] Yankees:
- The new Yankee Stadium will end up costing approx $1.5 billion
- The New York Yankees up front contribution towards the construction costs were $225 million–or 15%
- The Florida Marlins up front contribution towards their stadium costs are scheduled to be $120 million–or 23%
- The Florida Marlins up front costs could increase from 23%, since they are responsible for any costs overruns not attributable to government related delays. This explains why the Marlins insisted on selecting the architects and builders for the project.
The article noted a combined $400 million in infrastructure costs, however the costs related to Yankee Stadium alone totaled $325 million. When you read the quote from the article above about the New York teams, the importance of the words ‘upfront’ and ‘payments’ might not have jumped out at you. Here’s what else local, state and federal governments did for the New York Yankees, albeit things which fell outside the self-imposed parameters of ‘upfront public payments’ by the Miami Herald:
- They issued a total of $1.3 billion in municipal bonds to finance 87% of the new stadium costs. Structuring their debt in this manner–by raising the money through tax-free investments– is estimated to have saved the Yankees $268 million.
- The bonds were issued through a New York City agency, Industrial Development, and the city waged battle with the IRS to ensure that raising money for the stadium qualified as a legitimate public purpose for the bonds.
- Exempted the Yankees from paying property taxes. The forgiveness of property taxes is common for large construction projects. Typically though, the property taxes begin after 20 years. In the case of the Yankees, it is permanent. Estimated savings on property taxes not paid after the 20th year–$417 million.
- Re the City’s battle with the IRS – They had to address the peculiar issue of why investors in bonds issued by a NY city agency, would be receiving payments from the NY Yankees. The creative solution is an animal called PILOT.
- Exempted the Yankees from paying sales tax on stadium construction costs. Estimated savings to the Yankees–$42 million.
Bottom line. The New York Yankees annual payments towards those bond holders–in effect the stadium costs–will come to approximately $70 million per year for 30 years.
When $70 million really equals $49 million, then $40 million
The Yankees revenue sharing and luxury tax payout in 2008 totaled $110 million. It could have reasonably been expected to increase, especially after this off-season. However, there is a clause in the MLB collective bargaining agreement which allows teams to consider capital payments towards a new stadium as ‘maintenance’ costs and use those amounts to reduce their revenue sharing payouts [all teams pay out a certain percentage of their local revenues, the smaller market teams just get more in return]. In the case of the Yankees, it represents an approximate 30% savings on its annual payments. Which means that $21 million of the $70 million annual payments will go towards reducing the Yankees revenue sharing payouts. So how much did the new stadium cost the Yankees–a team worth, before the new stadium, $1.3 billion and with annual revenues of $327 million last year [compared to $128 million for the Marlins].
- $225 million upfront
- Annual Pilot payments estimated at $70 million
- Annual [30% of $70 million] $21 million reduction in costs since the team can deduct the Pilot payment from the revenue it is required to share with other major league teams. So as long as the Yankees Luxury tax payments would be in excess of $21 million, the Pilot payments resents a 30% net savings to the Yankees.
- Potentially another 30% net savings is the annual stadium maintenance costs, estimated at $30 million annually. Again, 30%of the annual stadium maintenance costs can be deducted from the revenue the Yankees are required to share with other major league teams. Now the net annual costs are down to $40 million, given the savings they represent from the Luxury taxes the Yankees would otherwise be responsible for.
The odds of the new Yankee Stadium paying for itself through higher gate receipts and the various governments help–upfront, out-back and in the middle stages–is high. So go ahead and complain about the Marlins deal with local governments. But at least get a few facts and rules straight. Rule #1, if you try and compare the Yankees and Marlins stadium deals, please try and do so with a straight face.
To the Miami Herald I dedicate a song by Bob Seger:
Well those drifters days are past me now
I’ve got so much more to think about
Deadlines and commitments
What to leave in, what to leave out
I need to thank to Neil deMause from the Field of Schemes blog. While no fan of public financing of stadiums, he takes the time to help all interested in understanding this issue. Below a recap of the various sources:
Loot, Loot, Loot for the Home Team
House That You Built
Sports Business Daily
(Costs)/Savings From Exemptions and Subsidies for New Yankee Stadium – chart below – click on chart to enlarge
Florida Marlins stadium deal better than most for team
Posted on Wed, Feb. 11, 2009
BY JACK DOLAN AND CHARLES RABIN
The Florida Marlins stadium deal coming up for final showdown votes Friday — where the public would foot 70 percent of the construction bill and share none of the revenue — would be among the more generous to a team owner this decade, a Miami Herald analysis found.
Fourteen Major League stadiums have been built, or begun, since 2000. The average public contribution for construction of those stadiums has been 44 percent, the newspaper found.
Under the proposed Miami deal, the Marlins would rank ninth of the 14 in the percentage of construction costs borne by the team, the newspaper found.
”It’s probably not the best deal that has ever been worked out between a community and a team,” Miami-Dade Mayor Carlos Alvarez said after his State of the County speech on Tuesday.
But he insisted it’s better than most and comes at a time the region is thirsting for a public works jolt, adding: “At some point, negotiations have to stop.”
The Herald examined public records, reviewed media reports and spoke with city and county officials across the country to create its list, showing:
• The public paid a higher percentage for construction costs for stadiums in Cincinnati, Pittsburgh and Milwaukee. Taxpayers in Washington and Houston also paid more initially, but will recoup much of their investment through generous revenue sharing with the teams.
• Team owners are on the hook for a greater share of construction costs in Minneapolis, San Diego, Philadelphia, Detroit, St. Louis, New York — with stadiums for both the Mets and Yankees — and San Francisco. The New York stadiums, worth nearly $2 billion, include no upfront public payments — but the city is investing nearly $400 million in infrastructure surrounding the ballparks.
Stadium deals are complex financial transactions that can be difficult to compare. Some involve outright gifts of public land, which can be hard to value, some involve taxpayer-funded infrastructure that benefits the team and the public, and almost all involve varying degrees of low-interest financing subsidized by government agencies.
Those factors make it impossible to draw an across the board, apples to apples, comparison of every financial variable.
However, the initial stadium construction agreements are generally comparable, typically setting the tone for how generous local governments are going to be to the team over the multidecade life of the deal.
The Herald analysis of those deals shows cities that drove the hardest bargains often did so after putting stadium deals to a public vote, or after politicians dismissed threats from team owners to move.
Voters in St. Louis refused to finance a stadium for the venerable Cardinals, so team owners raised 88 percent of the construction money themselves, relying on a county loan for the rest.
In San Francisco, where voters rejected four ballot measures that would have committed public funds to a new Giants stadium, a local grocery magnate built a spectacular waterfront park with money from Silicon Valley investors and deep-pocketed fans.
”We really would have preferred if the public had taken the risk instead of us,” said Peter Magowan, who bought the Giants after the failed ballot measures. “But voters had spoken in unmistakable terms to us a number of times.”
In Miami, the Marlins and local leaders carefully avoided a public referendum by structuring the deal so most of the public money comes from hotel bed taxes paid primarily by tourists.
Bob Starky, who consults for Major League Baseball on stadium deals, reviewed the newspaper’s findings.
”The most difficult thing to do with these deals is compare them,” he said.
Starky questioned how fair it is to compare the Marlins to large market teams like the Yankees and the Giants, or even smaller market teams with historically high revenues, like the Cardinals.
”They can put more toward the ballpark than Miami, or Minnesota or Pittsburgh,” Starky said, “just like some people can afford to buy a bigger house.”
In some cases, teams were willing to put up more of their own money because they own the property adjacent to their new stadiums and would profit from the development of restaurants and shopping. San Diego, Detroit and St. Louis fall into that category, Starky said.
Under the proposed Marlins deal, outright public gifts would cover $361 million of the $515 million stadium construction. The Marlins would pay $119 million and get another $35 million loan from the county, to be repaid in escalating annual installments.
The Marlins will not have to buy land: The county will host them rent free for 35 years on the site in Little Havana, which is assessed at $16 million by the county appraiser. The county will own the stadium, so the Marlins won’t pay property tax.
So-called bed taxes will cover $311 million of the total $515 million cost.
But revenue from the bed tax has been severely compromised by the global recession, raising questions about whether the county would have to dip into the general fund, which pays for a wide range of services, including police and garbage collection.
Public money also paid the estimated $10 million cost of demolishing the Orange Bowl, which had occupied the site, and will cover an estimated $24 million in infrastructure work.
Other cities have constructed finances differently. In 2004, the Washington, D.C., council voted to cover all $600 million of construction costs for the Nationals. But, Washington also shares significantly in the team’s proceeds.
To help cover the city’s roughly $35 million annual construction loan payments, the Nationals pay an average rent of $5.5 million a year. The city also collects tax on tickets and merchandise at the stadium; their share came to $12.5 million in 2008. Taxes on businesses and utilities cover the rest of D.C.’s annual loan payment.
Marlins President David Samson said up until six months ago, he offered the county the exact same deal that D.C. received.
But county officials say they’re better off with Marlins owner Jeffrey Loria spending $154 million toward construction costs than creating dedicated revenue sources for the stadium.
”Washington, D.C., is all public money, it’s taxes imposed on users of the stadium,” County Manager George Burgess said. “We have not created any new tax or fee, or raised any, for the financing.”
Robert A. DuPuy, president of Major League Baseball, said of Loria: “This is an owner who is reaching in his own pocket in a market that, frankly, is unproven.”
The San Diego Padres opened their new stadium in 2005, built with 67 percent public funds, slightly less than in Miami.
As part of the deal, the team owner invested $300 million to help develop the neighborhood surrounding the stadium. There is no such requirement for the Marlins to invest in Little Havana.
The city of San Diego is able to pay off its debt with proceeds from other events at the stadium, including concerts, soccer matches and motocross races. The city makes more than $1 million per year through such events, said Tim Moore, the city’s ballpark administrator.
Under the Marlins’ pending deal, all revenue from the first 10 non-baseball events at the stadium each year would go to the team. After that, the county would get half the profits, but the money must be spent on capital improvements at the park — another benefit to the Marlins.
”Wow, the Marlins negotiated a good deal,” Moore said.
In Milwaukee, emotions are still raw even though the stadium opened eight years ago and the Brewers made the playoffs in 2008.
”You’re gonna get ripped off, lookout,” Wisconsin state Sen. Michael G. Ellis said last week. “Bud Selig is on the way; hold on to your wallet.”
Selig, now the commissioner of Major League Baseball, owned the Brewers when stadium negotiations began in Milwaukee in the early 1990s.
The initial conversations involved Selig paying for his own stadium, said Ellis, who was majority leader of the state Senate during key votes. Through relentless lobbying, ”the worm turned,” Ellis said, and the public wound up footing 78 percent of the bill.
Selig got the site he wanted, in a remote location where the team wouldn’t have to compete with other restaurants and businesses.
The Miami deal sounds familiar, Ellis said. “So it’s a self-contained unit? They get the revenue and they don’t pay property taxes? It’s the same modus operandi as they used up here.”
Former Wisconsin Gov. Tommy Thompson, who went on to serve in President George W. Bush’s Cabinet, was originally a strong supporter of the Brewers’ deal. ”It couldn’t have happened without me,” Thompson said in an interview last week.
But as the deal progressed, Thompson soured. The Seligs, he said, “were going to contribute a lot more money and a lot more support, and they just kept pulling back, all during construction.”
Thompson said if he were a Miami politician, he would not vote until he saw signed, enforceable contracts for every aspect of the deal. He would insist the Marlins prove they have the financial wherewithal to live up to their end of the deal.
Contracts for stadium construction and operation are written, but not signed. The Marlins have fought for years to keep their finances private, and so far have not offered public proof they can cover their share of the construction costs.
Marlins President Samson said he expects to approach lenders in the next 18 months, and that ”the banks are comfortable today” with lending money to Major League baseball teams. ”People want to own that paper because they know there are revenue streams that never go away,” he said.
Selig could not be reached for comment.
City and county commissioners will cast votes on five separate stadium contracts on Friday, the final votes in the franchise’s decade-long quest for a permanent home.
Passage could come down to a one-vote swing, as the County Commission must approve two contracts — for construction and management — by a 2-1 majority because the Marlins hired contractors without formal bid, requiring a bid waiver.
MLB’s DuPuy added that the Marlins might be better off somewhere else if a stadium deal can’t be hammered out. ”Anyplace is better than Miami without a ballpark,” DuPuy said.